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Terraced Houses

Buy to let rents suffer a big drop

By Lorna Bourke | 00:01:00 | 26 February 2009

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New figures confirm what independent commentators have been warning would happen for some time – the buy to let boom is over, rental returns are falling and tenants suffering unemployment are finding it just as hard to pay their rent as owner-occupiers struggling to meet their mortgage repayments. 

Home sellers, unwilling to accept what they consider a silly price for their properties, have been turning to the rental market and letting them out. In many areas there is now a glut of available rental property.

The Findaproperty.com Rental Index reports that a surge in supply has pushed UK rental asking prices down by 1.2% over the month and 4.8% over the year.   

Average rents in February 2009 were £830 per calendar month compared with £840pcm in January and £872pcm in February 2008.  Findaproperty’s figures are based on information posted independently on their site from a total of over 444,000 sale and rental properties.

Not surprisingly, the fallout from the credit crunch and banking redundancies is taking its toll.  In London, areas that are heavily dependent on City workers as tenants such as the City of London, Tower Hamlets and Canary Wharf, as well as Kensington & Chelsea are experiencing significant rental price falls, in some cases a drop of up to 11.7% equal to a fall in rental income of £221 a month.  More affordable outer London boroughs are proving much more resilient.

Excess supply and falling rents is a pattern replicated across most of the UK regions. The North West experienced the worst decline – annual rental prices are down by 14.3% to £592pcm from £645pcm.

UK rental yields overall remain unchanged at 4.6% for the fourth consecutive month as a result of a decline in house prices. 

The rental market has varied sig­nificantly across the UK, with rents declining by between 2.3% and 6.1% year on year.  Attention has been focused on city centre flats which have seen dramatic price falls as a result of oversupply and a shortage of tenants able to pay a viable rent, sufficient to cover the landlord’s mortgage costs. 

Findaproperty reports that rental asking prices have fallen by 14.3% in the North West over the past year, accelerating in February 2009 with prices plunging 8.2% on the previous month. This fall has been caused by a very significant increase in available stock, especially in the Manchester area, which has seen supply increase by 45.9% over the past year and now accounts for 57.8% of the available rental property in the whole of the North West area.

Findaproperty says that the clearest and most dramatic trend in the UK rentals market is the significant increase in stock levels.  In the past six months the number of rental properties adver­tised on the website has almost doubled and is up 43% between September 2008 and February 2009. Over the past month alone, stock levels have risen by 8%.

However, demand is up too – although not by enough to soak up the increase in available property.  Homebuyers, unwilling to commit to buying while prices are still falling and unemployment rising, are renting.  FindaProperty reports that the number of enquiries for rental prop­erties is up 22% and enquiries to agents are up 8%.

But this rise in demand has been outstripped by the increase in supply and as a consequence properties are taking longer to rent. The average time a property is on the market has risen to 70 days, a 27% rise year-on-year, says the report.  That is over two months when the landlord has no rent coming in.  Better to accept a 10% cut in rent than have the property empty for over two months.

‘The credit crunch and the downturn in the sales market have led to a very significant increase in activity in the rentals market,’ commented Andrew Smith, head of research at Findaproperty.  ‘Tenants are the real winners in this situation – they have a huge stock of property to chose from, often high-quality owner-occupier stock – and are in a strong position to negotiate on rents and/or services.’  Clearly in this environment landlords will have to upgrade their properties to compete and maintain rental levels.   

‘According to some of our member agents, tenants are becoming more demanding as the market swings in their favour and landlords are now less likely to receive the uplift in rents at renewal that they might previously have achieved. Some landlords are offering extras such as cable and satellite TV, weekly cleaners or even improving their property to make it more appealing,’ says Smith.

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Comments (4)

WPAonCB - Problem BTL what problem?

12:17 | 26 Feb 2009

As a friend once said "Why are you so lucky?"

To which I replied "You know the savvier I get and the harder I work the luckier I get"

Lucky me I bypassed overpriced City(Shitty) Centre flats. The maths just did not stack up.

Lucky me I only bought new at reasonable discounted prices, even at the height of the boom. My Motto "Top of the Bottom or Bottom of the Top" on good sites.

Lucky me I opted for Trackers and am not overgeared. Cheap money lovely jubbelly I can shave rents if I need to and still make loads a money.

Lucky me I always negotiated free fees (well I did buy from IBM in a past existence and also worked in the souks of Arabia so learned a few negotiating tricks), extras (like dishwashers) and upgrades - fancy fires, better kitchen spec and even bought some ex show homes - top top spec. Plus discounts for cash - no chain.

Lucky me I have a spread of reasonable priced properties from 1 bed flats in smaller low rise blocks, some in the posh suberbs, 2 bed/2 bath flats/ 3 bed semis and reasonably priced 4 bed/2bath townhouses.

Lucky Me - All in a zone I can service so no high fees for mediocre management by Estate/Lettings Agents.

Lucky Me I have a small band of experts I can call on for low priced selling, maintenance, Gas Certs, EPC's and I do my own inventories. Beware standardised inventories coming soon.... More government bureaucracy and interference that adds costs for little value to either tenant or landlord..

Lucky Me my quality stocks means my rents are going up or holding firm or where amateur landlords have caused a glut I can reduce them slightly (thanks to trackers at no net cost to me).

Lucky me many of my tenants are double income and in safe public sector jobs or as single working mums qualify for LHA and other brides of the state benefits....! And I have already done a risk analysis of tenants in my portfolio.

The last property I have just re-let well before the old tenant moves out due to a job change further away by his partner. He was a long term star who traded up my properties from flat to small mews townhouse with garden and better more secure reserved parking.

Do not confuse the mass of amateurs with the savvy professional landlords pleeeease , who have seen this coming and prepared for it. I even have a six figure separate war chest of cash for any rainier days.... to come.

Plus Lucky me I even have some unmortgaged € zone property that hedges my £Sterling. Very popular international costas area much favoured by rich Russians.

But we are not complacent as the lunatics are in charge of the asylum that is the diss-United Kingdom run by moronic Scots who are pouring billions into RBS to save face. But that's another story.

And PS as a pensioner this is just a hobby to tide me over until HMG divvys up my Equitable Pension Compensation.

See us at....

www.bollandproperty.vpweb.co.uk

Mark Brookfield - It's not all doom and gloom though

12:49 | 26 Feb 2009

With the fall in base rate from 5% to 1% in the last year, buy-to-let investors with a tracker or variable rate mortgage have saved more on their mortgage than they'll lose in rental income

dislexic Landlord - BTL

15:24 | 26 Feb 2009

Well said Mark

I personely have found that properties I have purchased in the last three months have given me More rent than I had expected

so you cant belive every thing you read

Im sure SAM WISE will be clapping his hand to find that BUY TO LET has got problems

But as I understand he is investing in commircial property which if my mind serves me correct has got its own problems

ie Rates on empty property

But there agin if you do have an empty flat or house you can apply for an exemption

alf - are they now trying to talk down BTL

23:42 | 26 Feb 2009

i have trackers at below the bank rate and propertys that hase not moved in value by more than 9% downwards its the big citys that drop the % and then they pull down the average - dont lets have people trying to write doom-and-gloom pieces, i have tenants who have switched to 12 months contracts instead of 6 months and i pass the savings on to them,

lets face it the banks are still at it, you have to have a larger deposit then they moved the above base rate % and now..........your yearly wage has to be £35000 - with income from your BTL not counted,

41% of landlords have either no mortgages or very little outlay..........

when i talk to mortgage advisers now they say you will have to watch out as your propertys will drop and tenants hard to find,

talk about believing there own spin,

nationwide %- halifax %- right move % keep putting the housing market down

not one off the big banks top brass had any qualifications it is reported !!!

still they lent to the americans who inflated the price of the houses and sold the mortgages to the banks over here and are still doing it - they have agread to take american mortgages for at least the next 3 years, toxic or what

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